Sainsbury's writes off £260m as supply chain IT trouble hits profit

Sainsbury's has written off £260m IT spend and is renegotiating a major outsourcing contract after it blamed supply chain...

Sainsbury's has written off £260m IT spend and is renegotiating a major outsourcing contract after it blamed supply chain problems for poor results.

The supermarket chain, whose profits have been falling further behind those of market leader Tesco, said last week that poor availability of stock had hit its business. This was because complex supply chain systems had not worked as expected, Sainsbury's said.

"IT systems have failed to deliver the anticipated increase in productivity and the costs today are a greater proportion of sales than they were four years ago," the retailer said.

Much of Sainsbury's IT is outsourced to Accenture, but four automated service depots, where many of Sainsbury's difficulties occurred, lie outside the scope of the deal and account for the bulk of the write-off. Accenture's contract is being renegotiated.

Sainsbury's said, "The contract with Accenture is being renegotiated to involve the company more fully in the selection and implementation of systems and IT solutions. Accordingly the company is rebuilding internal capability."

Sainsbury's uses a number of IT systems to manage its supply chain, mostly within the Accenture outsourcing deal. Distrib- ution warehouse management systems are provided by Manhattan Associates. Eqos has built an alerts system to improve stock availability in store, based on Microsoft .net technology. And Retek has supplied software to forecast product demand in Sainsbury's stores.

Sainsbury's said it would continue to use its supply chain IT systems and attempt to get better value from them, but when necessary it would revert to manual support. It also plans to reduce spending on IT and the supply chain.

Bola Rotibi, senior analyst at Ovum, said Sainsbury's review of its IT and renegotiation of its outsourcing contract with Accenture suggested that the retailer had not devoted sufficient resources to managing its relationship with the outsourcing supplier.

John Bird, marketing and communication manager at Manhattan Associates, said Manhattan's software had been tested by Sainsbury's to full capacity and the supermarket was happy to continue using it.

"In any complex re-engineering initiative, the reality of productivity gains do not just come from technology. It is a combination of getting technology to work together, change management and ownership by the customer of the project. I think [Sainsbury's] recognises this," he said.

An Accenture spokesman said, "We are responsible for the IT transformation programme at Sainsbury's, including some of the supply chain systems. However, the IT automation systems within Sainsbury's four new automated depots are not, and never have been under the scope of the existing contract. We are not responsible for the strategy, development and operations of these systems"

The IT timeline

December 2000

Sainsbury's outsources its IT to Accenture. "Driving change in our IT capabilities is a fundamental part of our business transformation plans," said Sainsbury's chairman Peter Davis.

March 2003

Sainsbury's rolls out Alerts and Resolution Management software to its supply chain. It will eventually be used by all of its 2,000 suppliers.

August 2003

Sainsbury's starts using self-scanning checkouts.

September 2003

Toby Anderson appointed head of online operations. His brief is to help Sainsbury's online home delivery service to win market share from Tesco.com.

October 2003

Suppliers use product- and store-based analysis using sales and loyalty card data, in an attempt to ensure products are more closely aligned with customer demand.

February 2004

Sainsbury's simplifies its contract with Accenture by buying an intermediary firm for £553m to handle the relationship between the two companies.

July 2004

Sainsbury's chairman Peter Davis stands down because of the firm's continuing poor performance.

September 2004

Sainsbury's is lagging behind its rivals in implementation of chip and Pin technology, and is set to miss the January 2005 deadline.

What Sainsbury's said about its IT

"Sophisticated customer and product segmentation over the past two or three years has required a complex supply chain solution which simply cannot be delivered to the required scale. The new automated depots are failing to perform at the planned levels."

"IT systems have also failed to deliver the anticipated increase in productivity and the costs today are a greater proportion of sales than they were four years ago."

"The contract with Accenture is being renegotiated to involve the company more fully in the selection and implementation of systems and IT solutions. Accordingly the company is rebuilding internal capability."

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